California Non-Compete Agreements Apply Only in Limited Circumstances

04/14/2015 // Keller Grover LLP // (press release)

Court have made it clear that California’s laws prohibit non-compete agreement in almost all circumstances. In many other states, these agreements can prohibit ex-employees from working for, or starting, another competing company for a period of time over a specific geographic area.

California Business and Professions Code section 16600 states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” State courts,

· Interpret the statute broadly and don’t enforce covenants not to compete except for narrow circumstances as defined by statute.

· Consider non-compete agreements to violate California’s public policy that promotes freedom of competition and an employee’s right to move between jobs.

· Will strike down such an agreement even when a contract designates the law of another state or country as the applicable law, unless the agreement falls within an exception or the other jurisdiction’s interest is more significant than California’s.

There could be legal consequences for an employer trying to use a non-compete agreement.

· If someone is told to sign such an agreement or he or she will not be hired or will be fired, the employer would be breaking the law and could face a lawsuit from the job applicant or employee for wrongful termination.

· Just asking someone to sign an agreement not to compete or trying to enforce it against an employee or subsequent employer could result in legal action for unfair competition.

California Business and Professions Code section 16601 provides an exception to this blanket rule.

· A buyer of a business interest can enforce a covenant not to compete against the seller.

· This includes merger arrangements in which an employee sells his business interest in a company by exchanging his shares in that company for shares of the newly merged company.

An employer can, however,, legally limit the type of information an employee can use while employed and in his future employment. For example, .

· Employees can be prevented from competing with their employers during their employment.

· Confidentiality provisions in an employment agreement can prevent disclosure of trade secrets (such as customer lists, vendor lists, pricing, product information and strategic business information and plans). After leaving a job and joining a competitor, an ex-employee would not be able legally use this protected information against the employer, including not using trade secrets to solicit customers after the worker leaves the job.

· As part of an agreement an employee can also agree not to try to solicit other employees to quit their jobs and join another company.

If a non-compete agreement has been presented for you to sign, either for you to be hired or as a condition to keep your job, contact a lawyer.

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